Stock market turmoil – the fallout

Just over a month ago the clearest signs yet were given that a potential rerun of 2008 is just around the corner. Déjà vu translates as ‘already seen’, and is the name given to that sensation we all get when we’re certain we’ve seen events unfold in the same manner before, regardless of whether we actually have. In this case, we actually have.

The damage from the violently turbulent stock market period towards the end of August and beginning of September is still being assessed, but already there have been some clear winners and losers. As news filtered through of huge dips, particularly in Asian and Chinese major equity funds, it had a great deal of people running to their phones – some to check on the health of their pension or investment portfolio, others to get on as many of the fallers as they possibly could.

Equity funds

The damage has of course been directly down to China. Growth has slowed, export demands are down, even the largest real estate developers in the country are now using public crowdfunding platforms to raise capital for new projects – due to the huge slow down in the sector. So with confidence at quite a low after 35 years of perpetual growth, the country’s stock market inevitably fell. The biggest loser was GAM Star China Equity, which fell 15% in two weeks, but many other large scale equity funds were not far behind.

The big winners were funds that are less dependent upon global financial fluctuations, for instance a number of equity funds comprising medium-sized UK and EU businesses coped well during the rocky period, with a Standard Life fund only losing just over 3%.

The other investors that came out relatively unscathed were those that hold huge multi-asset funds. Theses are funds that have been structured to deliver regardless of financial conditions, and the sternest test of their resoluteness was certainly the two weeks of turmoil. They passed the test.

The very popular Old Mutual Global Equity Absolute Return fund was actually up 0.4%, and two other major funds – Standard Life Investments Global Absolute Returns Strategy (holding $26 billion – lost 1.6%) and M&G Optimal Income (holds $20 billion – lost 0.6%) came out of the period very much intact. What this shows, is that regardless of what may lay ahead in 2016 according to the many doom mongers who have become very vocal, the right investments at this uncertain time could well come through unscathed and more profitable than ever.

Active management

One of the most significant revelations to have come from the downturn period was the triumph for active fund managers. Funds managed pro-actively and manually by a manager picking investments assessed to be in the best shape to overcome any turbulence that may lay ahead, outperformed trackers that follow the indexes.

Many tracker funds will always feature oil and gas companies, and this was a sector hit particularly badly by the crash. This gives great weight to the argument that one would be better off with an experienced fund manger making decisions on their behalf, because they will always look for a portion of the fund to be placed in alternative investments not necessarily so hugely affected by global market trends.

A private financial consultancy based in Dubai, favours the actively managed route, but only in certain circumstances. “It’s at times such as this that you really see the value of active fund management. Yes, there are fees attached to this process, but they are coming down, and as new technology has also entered the fray, the process has become so much more refined. An effective fund manager has all the right credentials and connections to ensure his fund outperforms the market. Does every fund manager achieve this? No. But there are many very intelligent fund managers out there, and their operations more often than not are far more desirable, performance driven platforms than anything that follows the index.”

Is also in no doubt about what the crash means for investors. “The market fall we saw really does suggest that now is the time to invest, and this is something we have been advising our clients. These opportunities don’t come around too often, and there are some very strong funds available for entry at vastly discounted rates right now.”

The opportunity

As always, when a market falls, the opportunities are rife. As Warren Buffet puts it: “The lower stocks go the more I buy.”

A number of high premium investment companies saw their shares fall quite dramatically, opening up a window of opportunity that only the blind were likely to miss. The Fundsmith Emerging Equities Trust fell to around £8.30 per share, when it usually sits comfortably at around the £11 mark. This is a strong performing stock that offered a potentially hugely rewarding window of opportunity. Even now the stock sits at £9.60. It’s something worth thinking about.

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